Volumes turn it on for Hindustan Unilever, profit beats Dalal Street

Hindustan Unilever (HUL), the country’s largest consumer goods company,  on Monday exceeded street expectations by reporting a 21.7% growth in net profit at Rs689 crore for the quarter ended September, up from Rs566 crore in the same quarter a year earlier.

Net sales, too, jumped 18% year-on-year to Rs5,522 crore, ahead of analysts’ forecast of Rs5,329 crore.

The strong showing was powered by a volume growth of 9.8%, which was higher than the anticipated 7-8%. However, it was lower than the double-digit volume growth of 14% during the same period last year. The pace of price rise during the quarter has been higher than volume growth, the company said during a media interaction at its Mumbai headquarters on Monday.

“The FMCG market continues to grow well, in double digits - at a pace slightly faster than the June quarter. However, the component of price was higher than the component of volume in the growth of the market, particularly in soaps and detergents,” said R Sridhar, chief financial officer, HUL.

The company’s largest segment, soaps and detergents, grew a decent 21.8%.

Nitin Paranjpe, chief executive officer, said the actions taken by the company over the last many quarters - strengthening of brands, improving product quality, straddling the pyramid - are all bearing fruit.

“We are also driving premiumisation very hard. Our premium segment is growing rapidly. The 600,000 new outlets that we added last year are now enabling us to access markets where no one else manages to go. This is a source of significant competitive advantage. The technology intervention we made to improve the coverage in urban market through Project IQ is beginning to work for us,” he said.

“HUL’s revenues, Ebitda (earnings before interest, taxes, depreciation and amortisation) and adjusted PAT (profit after tax) have grown 18%, 27.8% and 21.7%, respectively, which compares favourably with our expectations of 16%, 14% and 10%, respectively, and consensus expectation for net profit growth of 10%,” Morgan Stanley analysts Nillai Shah, Girish Achhipalia and Sanath Sudarsan wrote in a note to clients on Monday.

Kaustubh Pawaskar, analyst at Sharekhan Institutional Research, said the highlight was the growth in the competitive soaps and detergents segment.

Paranjpe said despite the positive trends of increasing aspirations and increasing rural incomes, some trends like high inflation and high interest rates are dampening consumer sentiment.

Analysts said HUL products are performing well across modern trade and general trade outlets after the company stepped up efforts to gain share.

The quarter was characterised by a high level of innovation activity that included relaunch of soap brand Lux, launch of natural range in Pond’s, launch of Dove nourishing range and various tea bags, relaunch of brand Kissan under ‘100% real’ proposition, introduction of Rs5 pack in Knorr Soupy Noodles, and launch of a reverse osmosis product in the water business called Pureit Marvella RO.